CHART OF THE DAY: Why America Should Love Its Exploding Trade Deficit

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The latest Balance of Trade data came out this morning, and for the month of November, the US ran a $47.8 billion trade deficit with foreign trading partners.

That was about $2 billion wider than expected, and a jump of about 10% from the previous month.

Now technically, trade deficits are a negative for GDP, and so technically a wider deficit is seen as “bad.”

But history suggests it’s 100% the opposite.

Today we’re updating a chart we’ve run before, which compares the year-over-year change in the trade deficit to the year over year change in GDP. Technically we’ve inverted the year over year change in trade deficit, so that when the trade deficit shrinks dramatically, the red line goes negative.

What you can see, basically, is that when the trade deficit shrinks dramatically, so does GDP. And when the trade deficit goes up, so does GDP. It actually works out very nicely, going back about 20 years.

So don’t fret about a big number. Root for it!

chart of the day, trade deficit to GDP, jan 13 2012

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